Image source: ThinkstockAmazon’s largest seller Cloudtail surpassed the country’s largest department chain Shoppers Stop by revenues which grew fourfold during the year to March 2016, highlighting the growing popularity of online buying as well as of Jeff Bezos’ company in India. This has also posed an unusual problem for the world’s largest online retailer which has to slow down sales of its Indian joint venture firm to comply with government norms.

Cloudtail, a JV between Amazon Asia and Infosys founder Narayan Murthy’s personal investment vehicle Catamaran, posted over 300% jump in revenues to Rs 4,591 crore. This is slightly higher than the consolidated revenue of Shoppers Stop at Rs 4,582 crore and almost twice that of the Tata-owned Trent that logged sales of Rs 2,397 crore during the same period. A year ago, Cloudtail had clocked sales of Rs 1,145 crore. Its net loss too has narrowed to Rs 30 crore from Rs 32 crore.

“On paper, Cloudtail is just a merchant on Amazon but essentially the kind of growth it has seen would not have happened without Amazon’s support,” said Devanghsu Dutta, chief executive, Third Eyesight, a consultancy firm.

But for all its success, Amazon is scrambling to reduce its dependence on Cloudtail which as of now accounts for over a third of the sales that take place on its shopping platform in India. That’s because government regulations announced earlier this year do not permit a single vendor to account for more than 25% of sales of an online marketplace where foreign money has been invested.

Amazon, Flipkart and other similar marketplaces have to comply with this guideline by March 31, 2017.

Over the last few months, Cloudtail has almost stopped selling mobile phones. Smartphones constituted the largest category of ecommerce sales and formed a big part of Cloudtail’s overall sales in previous years. But it continues to sell Amazon private labels in India.

An Amazon spokesperson said the company has put a process in place to assess the performance of the sellers on the platform and update sellers if they are close to or about to exceed the 25% threshold.

“Cloudtail is one of the 140,000 sellers that sell on the Amazon.in marketplace. Our marketplace has grown tremendously in the last three years, and sellers have seen growth in business.

Our continued belief is that a robust marketplace cannot be built on a single seller focused strategy. We have a robust platform which is open to all,” said the spokesperson. “We have and we will continue to operate within the parameters of the laws and policies of India as we do in each country we operate in.”

Amazon India’s largest rival Flipkart was also heavily dependent on a key vendor, WS Retail, for over three-fourths of its sales until two years ago. But it has gradually reduced its dependence on WS Retail and claims it has moved towards a pure marketplace model which can allow over one lakh sellers to compete on the portal within nearly 80 categories.

India is one of the fastestgrowing markets for the US etailer and its founder Bezos has pledged to invest $2 billion in local operations. Last month, it invested Rs 2,100 crore in its main India unit, taking total capital invested in Amazon Seller Services to over Rs 7,000 crore in the last 12 months.

The country’s ecommerce market is expected to grow to $103 billion by 2019-20 from $26 billion now, according to Goldman Sachs.

Amazon expects India to overtake Japan, Germany and the UK to become its largest overseas market, besides becoming the quickest to reach $10 billion in gross merchandise value in the company’s history.

It’s showing in Amazon’s performance already. Amazon Seller Services has more than doubled its revenues in the year ended March. It earns its revenues through commissions, advertisements and shipping fees that they charge to sellers.

“Being a third-party market has caused a lot of invention on our side. The team in India has been very creative on whenever they find a roadblock or something that has not existed in another country, they create it themselves, whether from delivery stations to working with small merchants,” Brian Olsavsky, CFO at Amazon-.com, told investors in October this year.